April 22, 2022Newsletter

Building the “E” in Corporate ESG

Practical tips for business leaders


Environmental, Social & Governance (ESG) issues are critical considerations for businesses today, regardless of its position in the supply chain. Any strategy to address environmental risk and opportunities must emphasize stakeholder engagement.

Companies should aim to engage extensively and creatively, listening to stakeholders—workers, suppliers, consumers, regulators, communities, and investors—and authentically address trade-offs while building ESG programs that maximize benefits to the company and stakeholders alike.



Good Governance Is Key to Success

The link between business value and the “E” in ESG is complex. A core tenet of success is the integration of environmental factors into a company’s established risk evaluation process, with the ability to set targets and monitor progress.

That kind of integration doesn’t happen overnight, of course; there are material implications to manage, from workforce dynamics and technology to shifting regulatory structures and operating standards. This is where the governance aspect of an environmental strategy comes into play. Every major decision a business leader makes involves risk, and implementing an environmental strategy is no different.


Strategies for Building the “E” in ESG

Review and Embed Policies

When it comes to environmental sustainability efforts as part of an overall ESG strategy, goals must be reasonably attainable, supported by data mining and dashboards, and effectively communicated and actioned throughout the business. All employees, especially those who oversee operations, should be educated and involved in the scoping and development of policies to achieve verifiable, reportable outcomes and avoid claims of “green washing.”

Leaders need to ensure that their organizations’ policies evolve alongside and in harmony with changing operating environments. Sustainability must be achieved in an operational environment to have long-term legs and impact.

Optimize Your Operations

Following an authentic path to sustainability is key. That means minimizing resource impact where possible, reducing waste, measuring outcomes, and finding creative solutions, all while managing costs and holding business partners accountable.

Managing resources and resource impacts is tied closely with managing risk—in your products, supply chain, and operations.  Ultimately, a successful ESG strategy enhances enterprise value and creates an environment where labor recruitment and retention can also be addressed. Employees like to work for a winner and a market leader. 

Be Proactive with Data

The ability to assess progress is a foundational part of environmental strategy. Without effective goal setting and data collection, management, and integration into decision making, it will be more difficult to drive the type of behavior and outcomes you desire. Mining data or establishing new measurements is a critical gating issue and serves the old saw “what gets measured gets managed.” Avoid garbage in/garbage out or collecting data toward no end. 

Good data collection and analysis improves leadership’s ability to oversee strategy development. All the data in the world won’t help unless you know what it means and how to evolve your strategies in the face of new information.

Enhance Education of Your Board

Board recruitment and education should emphasize knowledge of ESG issues and risk. A board that does not have a fundamental understanding of the materiality of this developing area is at risk of making missteps.  Market leaders have been planning around these issues for some time.  

Consistent focus on the skill set of directors is a cornerstone of an effective board—a board that’s capable of overseeing strategy in a fast-moving world where sustainability concerns are big news.

Drive New Business Strategy

Directors not only oversee, but also drive the company’s environmental strategy. This strategy should be positioned as a core element of the company’s vision and values. In addition to managing risks amid mounting pressure to take meaningful action, there’s a growing opportunity for companies to capture new value through authentic sustainability actions.

For some companies, this may be about gaining a cost advantage through their own or their suppliers’ energy efficiency improvements. For others, it may be about new sales; increased margins from low-carbon products and services; or, even more fundamentally, securing a long-term business future, as some products and services will not be possible in a net-zero world.

Engage Stakeholders and Communicate

As part of a coherent environmental strategy, companies must remember to keep engaging with stakeholders. It’s incumbent on companies to fill the information gap, communicate progress, and set the agenda with stakeholders on environmental priorities and targets. Failing to do so leaves the narrative to others and may be a missed opportunity to derive value and goodwill from sustainability accomplishments.

ESG programs and environmental sustainability efforts are never “one and done.” They take ongoing commitment and adaptability. Business leaders who make that commitment are positioning their companies for long-term success and value.

This article is not legal advice. Please contact your Michael Best attorney or an attorney on our ESG team for assistance.


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